Mutual funds are becoming increasingly popular. In the past, people preferred to make fixed deposits in banks and post offices, but now, they also invest in mutual funds.
There are various types of mutual funds, including the Systematic Investment Plan (SIP), where a certain amount is invested monthly.
Another option is the Systematic Withdrawal Plan (SWP), which allows investors to withdraw cash monthly without compromising their investment. This is particularly useful for those seeking a fixed monthly income after retirement.
SWPs are beneficial for individuals who need monthly income during retirement. They provide a way to obtain a regular monthly income from savings with more flexibility than fixed deposits and annuity plans.
SWPs allow investment adjustments based on returns, risk, and monthly income requirements.
Some benefits of SWP include being a feasible way to secure a fixed income, the ability to withdraw a fixed amount of money in different patterns (monthly, quarterly), and the peace of mind it provides for retired individuals who need income to cover living expenses.
SWP also helps with financial discipline during retirement and ensures that individuals do not withdraw more than necessary, thus assisting in better financial management.
Additionally, it helps retain capital by preserving a portion of the investment while providing income.
Choosing the correct withdrawal rate is essential to ensuring yearly income increases. Factors such as estimating a moderate return on investment are crucial in this decision.
For example, with a safe investment and a 6 percent annual return, a corpus of Rs. 70 lakh would be required to receive a monthly pension of Rs. 25 thousand, growing at a 3 percent rate annually.
A corpus of Rs. 51 lakhs would be required for an 8 percent annual return, Rs. 41 lakhs for a 10 percent annual return, and Rs. 34 lakhs for a 12 percent annual return.